Prescott warns Labour could end contracts: As MPs prepare to debate railway privatisation, Christian Wolmar looks at the investment needs of one line which may be in a 'shadow franchise'

POTENTIAL private rail operators were warned yesterday that their contracts could be rescinded by a future Labour government.

John Prescott, Labour's transport spokesman, warned companies seeking franchises to run trains that they might be forced to relinquish their rights. Speaking on the eve of today's Second Reading of the Bill to privatise British Rail, he said: 'I would judge all these matters against the background of how did it meet the public interest and the desire for a good public railway system.'

If the agreements failed that test, 'I would rather see that they were finished'. Firms losing such contracts might be offered compensation, he said. He emphasised that it was a future Labour government's right to reassess the contracts because the companies were asking for franchises of up to 15 years and there would be an election before that.

Mr Prescott, launching Labour's 10-point plan to improve the railways, also said that the bureaucracy created by the privatisation - quangos such as the franchise authority and the regulator - would be scrapped: 'I see no justification for it because at the heart of it is the argument that you have to split all the parts of the network into separate parts in order that they can compete.' A public monopoly was being replaced by a private one.

The Government is also expected to announce today the first 'shadow franchises' which will be operated under BR ownership to test the viability of the privatisation which envisages the separation of the network into operating franchises and a track authority.

Labour's threat was dismissed last night by John MacGregor, the Secretary of State for Transport. He said the semi-privatisation of BR would prove too popular to reverse.

'We will have up and running some successful franchises by the next election. I think once the passengers start seeing the advantages, it will be fairly easy to show this is the way ahead,' he said.